Malaysia and Indonesia are amongst the world’s top Islamic finance markets.

The global Islamic finance industry is on the right path to grow into a $6.7t industry by 2027, according to a 2024 report by the London Stock Exchange Group (LSEG).

The industry’s assets grew by 11% to $4.5t in 2022, slowing from a 17% rise in 2021 amidst “economic headwinds”, the LSEG reported.

This comes as Islamic financial institutions and activities reported lower metrics during the period. As of 2022, almost 1 in 4 Islamic bank reported lower profits or higher losses.

Islamic banks held $3.2t in assets as of end-2022.

Islamic funds also declined significantly. Most Islamic funds in most markets–both mutual funds and exchange traded funds (ETFs)–reportedly posted negative growth in 2022. Assets under management dropped by 10% from 2021 to $220b, whilst the number of new Islamic funds declined significantly from 223 in 2021 to 71 in 2022.

There are bright spots, however. ESG Sukuk is expected to grow in the coming years, with several governments reportedly indicating their intent to rebuild their economies more sustainably, LSEG said.

Total sukuk issuance reached $214.9b in 2023, up 9.9% from 2022.

This is ESG sukuk’s seventh consecutive record year since market inception in 2017, LSEG noted.

ESG sukuk issuance rose by 42% to $13.4b in 2023. Green sukuk issuance made up 58.1% of the total in 2023.

The Islamic sustainable finance is also expected to continue being highlighted thanks to the United Arab Emirates hosting COP28 in November and December 2023.

The industry is also seeing increased efforts towards developing knowledge and awareness of Islamic finance. For example, Indonesia is implementing a diversity of means towards raising awareness for Islamic finance as part of its regulators’ national strategy for financial literacy.

Amongst 136 markets studied by LSEG, Malaysia, Saudi Arabia and Indonesia were named the most developed Islamic finance jurisdictions.